Did you learn the difference between banks and credit unions in school? What about pitfalls of payday loans?
Many individuals lack a basic knowledge of how to plan, save, and invest – making it hard for them to build wealth and secure their financial future.
We know that financial hardship is a widespread issue in our region. Data from the latest United Way ALICE Report shows nearly 1 in 2 households in Southeast Louisiana is in poverty or living paycheck to paycheck.
According to Giazzlyn (Giazz) Duncan, Financial Capability and Workforce Development Manager at United Way of Southeast Louisiana, financial instability in the community has consequences for us all.
“If you have a whole community that is not achieving upward financial mobility, then you have an entire community that is failing,” said Giazz during a recent interview on LIVE UNITED Radio.
April is Financial Capability Month, and Giazz stopped by the studio to share tips for finding the best banking institutions and products to help you reach your financial goals.
#1: Evaluate your needs.
Are you planning to buy a house in a few years? Maybe start a small business? Evaluating your needs, according to Giazz, is the first step to finding the right banking solution. Banks are more than a place to funnel your direct deposits, she emphasized. “…it’s about a place where your financial needs, as they grow and change, you can utilize those products and tools that the bank or financial institution offers.” Learn more about the types of financial institutions from the Consumer Financial Protection Bureau at CFPB.gov.
#2: Bank or credit union?
When considering whether to use a bank or credit union, the decision comes back to your personal needs.
Credit Unions: Local credit unions often offer lower loan interest rates than national banks. They also may provide more “second chance” loan options for individuals with low credit scores. On the downside, credit unions have a small geographic footprint – which can present a problem during hurricane evacuations or travels.
Banks: If you need a bank with locations throughout the region or country, a national bank may be the better choice.
#3: Beyond the basic – money market accounts and CDs.
Basic savings accounts are not the only option for building your reserves. Graduated programs like money market accounts and CDs have higher interest rates and can help your savings work harder.
Money market accounts: Money market accounts operate similarly to checking accounts, but with more restrictions. Typically, the customer can only withdraw 5-6 times a month without a fee. There is also a minimum account balance that is higher than a normal savings account.
CDs: Money placed in CDs earns interest for a fixed amount of time. After that period, the money can be pulled out or put back into the CD (with the interest accrued).
#4: Products to avoid.
Some banking products charge costly fees or high interest rates, and should be avoided.
Prepaid debit cards: A prepaid debit card may be one of the only options for people without a checking account. Giazz stressed however, that this should not be a long term solution. “The prepaid card, it can be an avenue to help you for a period of time, and that’s key – a period of time. You do not want to stay in this type of product. It’s costly.”
Payday lending: Payday lenders offer short term loans, similar to a credit card, but at significantly higher interest rates. Giazz noted that Louisiana places minimal safe guards on payday lenders. “They can pretty much charge 700% in interest, to someone who’s just trying to pay their light bill,” she said. If an individual cannot pay back the loan in the next cycle (or payday) they are charged a renewal fee and get caught in the web of compounding loans and fees.
At United Way of Southeast Louisiana, we’re investing in programs and collaborations that teach individuals financial skills that can help lift them out of poverty. Ready to create pathways to prosperity for all with us? Give. Advocate. Volunteer. Connect.